JPM: Industrial Spec Sales: Should EU Defence be down so much?

European defence shares are the biggest losers in the analyst's coverage after the overnight Blue Tsunami, a reaction the note calls overdone. The market assumes Democrats will not support higher defence budgets, but the team expects a 10-15% increase in US defence spending next year, arguing that leaving the US military underpowered would not be wise for a party seeking the presidency in 2028, with global threats still present and the military depleted after its exertions in Iran. Trading implies investors are trading the sector rather than the stock: Thales has almost no US exposure, while BAE, Leonardo and Renk do. The note argues the ship has sailed on any US security umbrella, so European financing stress and the direction of rates markets are the key near-term drivers, and action to reduce inflation would help European defence more than an extra 100bn dollars of US spending. A new US administration supporting allies and confronting Russian aggression could extend support for Ukra